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China responded quickly to mitigate the adverse effects of US tariffs on its exports, implementing a series of measures that helped the world's second largest economy remain resilient in the face of an economic slowdown.
Analysts told the International Business Times that China has more policy options to support domestic companies and would also try to diversify into non-US markets as it prepares for a change. long-term trade war. They expect the countries of Southeast Asia and Mexico to profit from it, with US companies looking for other suppliers.
The trade war between the United States and China intensified after the announcement by President Donald Trump on September 17 of 10% tariffs on valuable Chinese goods. $ 200 billion. This amount should be increased to 25% as of January 1, 2019. This 25 percent of tariffs on $ 50 billion of Chinese products.
In retaliation, China imposed US $ 60 billion tariffs on US goods and Trump threatened to impose tariffs on the remaining $ 267 billion in Chinese imports for further reprisals by the US. from China.
Analysts said the 10 percent tariff on Chinese imports to the US is not large enough to have a significant impact on the Asian economy this year.
Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said China appeared to be able to manage its own economic slowdown despite US tariffs.
"The government is already accelerating infrastructure spending and taking steps to ease the liquidity of the financial system," he said. "US tariffs will not be fully offset by the impact of US tariffs, but between these measures and further depreciation of the currency, the shock will be amortized."
The Chinese economy grew 6.7% year-on-year in the second quarter of 2018, its slowest pace of expansion since the third quarter of 2016.
But Yung warned that the stimulus could "aggravate the imbalances of the Chinese economy and make harder the final cleaning of bad debts".
Arjen Van Dijkhuizen, senior economist at ABN Amro, said Beijing has stepped up budget support to offset the downside risks of the trade war and even foresaw upside risk growth of 6.5% for 2018.
"As Beijing strengthens its tax support and the PBoC refines its financial deleveraging campaign, we believe that the Chinese economy will be resilient enough to face the risks associated with the trade and economic conflict. investment with the United States, "he said.
On October 7, China's central bank announced a 100 basis point reduction in the reserve requirement ratio for the big banks, releasing about $ 109.2 billion in cash from the banking system.
Decrease in liquidity, reduction of American dependence
In a note seen by IBT, DBS said Beijing's best policy was to maintain the stability of its currency by further tightening capital controls to limit potential leakage of capital due to rising US rates.
"Measures such as lowering corporate taxes, increasing export rebate taxes, and operating costs are just some of the measures being implemented or being prepared to help the economy. to mitigate certain difficulties. Making credit available by injecting liquidity and easing credit policies are also measures to boost domestic demand, "said DBS in the note.
Outside, DBS sees China bypassing the potential hostility of countries other than the United States and seeking closer cooperation with them.
"China could cooperate more with countries in Europe, Japan and ASEAN, through Belt Road initiatives (BRI), trade and investment, which are still strategies long term, "said DBS.
"Policymakers can also accelerate policy design to facilitate the faster transition from an export-oriented model to a service-based model in the greater bay region." Last but not least, is to reduce the dependence on the United States as the main export market by diversifying its activities to Russia, Africa and South America, "he said. DBS.
Analysts also believe that Chinese producers could redirect their products to the United States via other countries to avoid import tariffs. Carsten Hesse, European economist at Berenberg, said: "Instead of the product imported from China (in the United States), it could come from Vietnam, for example, to circumvent tariffs. This will not fully offset the costs, but could partially offset them. "
SOUTHEAST ASIA AND MEXICO IN PROFIT
According to analysts, the countries of Southeast Asia, whose exporters have manufacturing costs similar to those of China, and Mexico will be the likely beneficiaries of the tariff measure taken by the United States.
These countries could potentially receive more inflows of foreign investment as companies re-evaluate their global supply chains in the medium term, said DBS in its note.
"If US importers find it too expensive to source in China, they could transfer their supply sources to countries such as Vietnam, Cambodia, Thailand and Malaysia," DBS said.
Singapore, a regional hub of finance and shipping, could also see gains as demand for its re-export, logistics and financial intermediation services increases, writes DBS analysts.
Yung thinks most companies will go to Vietnam, Thailand, Taiwan and Mexico to abandon production from China. Mexico will certainly benefit because of its closer commercial ties with the United States. "Infrastructure, banking and regulation should continue to improve in Mexico, which will lead to even greater US expansion in that country," he said.
But Yung says that many more companies will simply be "stuck" and unable to make significant changes in the short term.
"In the medium term, there may be a marginal relocation or increased production going back to the US, but that may be minimal, because American companies are struggling today to find work, even for current production, "he said.
"Overall, this is not a big advantage, but not a bad one either, and consumers and businesses in the United States will undoubtedly have to bear real costs along the way," he added.
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